Corporate Governance The Great American

Corporate Director Hunt

By Susanne McGee

It’s never been more vital – or harder – to attract qualified independent directors.  Who needs the hassle?  Yet good corporate governance depends on how companies cope with today’s director shortage.

For more than two decades, Leslie Rahl had made her living analyzing risks, but she never come across one quite like this:  In December 2003, Fannie Mae approached her about taking a seat on its board of directors

Rahl was honored, and in many ways she was the perfect candidate for the now-troubled mortgage lender.  A star options trader for Citibank in the 1980s, she had opened her own consulting shop, Capital Market Risk Advisors, in 1994 and was soon counseling Orange County, California, on how to handle $2 billion in derivative market player, needed a financial expert on the board to replace former Goldman, Sachs & Co. chairman Stephen Friedman, who was leaving to join George W. Bush’s administration as director of the National Economic Council.

But Rahl was also a little worried.  She had never been a public-company director before, and the previous few years of corporate scandals and strict new regulations had refined then nature of board service, turning what had often been a cushy networking opportunity into a high-risk endeavor.  Congress’s quick response to frauds at companies like Enron Corp. and WorldCom – the Sarbanes-Oxley Act of 2002 – had heaped unprecedented legal and financial responsibilities on board members.  Regulators, activist shareholders and trial lawyers increasingly were targeting directors for failing to question or prevent corporate misdeeds.  Complicating things further for Rahl, federal regulations had just announced and examination of Fannie Mae’s accounting practices following the company’s disclosure of a $1.1 billion error in its third-quarter earnings statement.

So rather than accept the position right way, the risk expert embarked on several weeks of painstaking due diligence.  She spoke with other Fannie Mae directors, scrutinized the company’s financial statements going back several years and even asked her husband, a bankruptcy lawyer, to vet the offer from a professional perspective.  After two months of checking out the company, she agreed to join its board.  (Since then the accounting probe had prompted a huge earnings restatement and the resignations of Fannie’s CEO and CFO.)

April 2005